Cost Accounting will unpack the goods to see if it complied with the purchase order form.

CHAPTER 3 Pag complied, gagawa sila ng receiving report (multiple copies din. a.
MATERIAL PROCUREMENT, USE AND CONTROL duplicate 1 - storeroom together with the goods; b. 2 copies with the
invoice - purchasing dept).
- Any entity is required to manage the procurement process, use and
control of materials or inventories of a manufacturing company. *may tatlong docs ang storeroom at purchasing dept. From purchase
- Ginagawa nila ‘to para malaman kung enough ba ‘yung materials for requisition form, purchase order form, to receiving report form. Dito
continuous sales and to avoid stock out or loss of inventories. malalaman na tapos na ang procurement.

PROCUREMENT FLOW (how do we account materials purchase and

who’s accountability is it when there are discrepancies)
 Different Forms Used in the Procurement Phase
1. Purchase Requisition Forms - pinapasa sa purchasing dept that originates
from different depts na nangangailangan ng materials.
2. Purchase Order - authorization signed by the by the purchasing agent to
a supplier saying na nag-oorder sila ng products under the agreed upon
price, specification, terms and condition with specified time and place of
delivery.
3. Receiving Reports - doc prepared by the receiving dept showing the
purchase order #, account # to be charged, and info about transportation
(freight), quantity and type of goods received.
4. Material Requisition Form - allows material storekeeper to deliver the D. Purchasing dept has 5 docs at hand (a. orig PRF; b. POF; c. 2 copies of
materials to the requesting depts Receiving Report; d. invoice). Ipapasa niya kay Accounting dept ang POF,
5. Bill of Materials - list of materials needed to produce a certain prod. Receiving Report, and Supplier’s invoice para icheck kung dumating ba
Meron ding details ng specification na nirequest. yung order and it is billed by the supplier. Kung lahat ng nasa POF as nasa
6. Return Material Report - gamit pag may mga material requisition na RR and SI, they will prepare a Disbursement Voucher. DV will be
hindi naman nagamit at ibabalik sa warehouse forwarded to the Treasury Department for payment. They will sort the DV
7. DM or CM - docs prepared when type, quantity or quality of prods into Paid or Unpaid vouchers. Gagawa sila ng checks para mabayaran yung
delivered is different from the agreed upon and adjustment is required to be unpaid. Irereport pabalik sa AD para marecord yung payment of the
made by the supplier’s invoice. supplies.

STORAGE AND USE OF MATERIAL FLOW

A. Requesting dept will prepare PRF in duplicate, wherein the orig will be
passed on to the purchasing dept (they have a need of material) and
duplicate will be given to the warehouse. E. The storeroom that holds the PRF, POF, and the RR will prepare a
Material Ledger Card/Stock Card based on the docs. Irerequest nung mga
nag-request na mga dept na irelease na yung mga materials nila by giving a
a Material Requisition Form. Pag dumating na sa storeroom, ipreprepare ng
warehouse man yung goods para ideliver sa requesting dept. Pag nabigay
na, need nila iupdate yung stock cards nila para maupdate yung inventory.
Requesting dept sometimes pass on Bill of Materials that has
specification of materials. It will help the warehouse man to know whether
the goods received are in accordance to what the depts need.

OBJECTIVE OF MATERIAL CONTROL

1. To allow uninterrupted production (right time) - materials should be
smoothly provided to the production dept to avoid delays that could lead
substantial loss to the company. May deadlines din na kailangan i-meet
B. Purchasing dept will prepare a purchase order (madalas quadruple yung entity kaya dapat tuloy tuloy na madeliver yung kailangan nilang mga
prepared - a. orig - supplier; b. duplicate 1 - retained; c. duplicate 2 - materials.
storeroom; duplicate 3 - receiving dept) 2. To have the required quality of materials (right quality) - kung gusto
natin magkaroon ng magandang finished products, dapat maganda din ang
quality of materials to be used in the production.
3. To minimize wastage, spoilage and defective goods - it will just add to
the expenses.
4. To assign responsibility - kailangan mag-assign ng mga personnel who
would oversee the materials in different stages of material flow.
5. To maintain costs of materials at a minimum and maximum level (right
quantity) - kapag nagoverstock ng materials, overstock din si investment.
Kapag naman understock yung materials, nakakamiss tayo ng sales. So
dapat alam ni entity kung ilan ang dapat na naka stock sa warehouse niya
na hindi sobra at hindi kulang.
6. To purchase materials of the minimum price (right price)
7. To provide information to the company (right source) - kung gusto
magkaroon ng magandang quality of materials dapat alam kung sino ang
C. Receiving dept will wait for the supplier for the goods. Supplier shall right suppliers.
bring the goods AND THE INVOICE to the receiving dept. Receiving dept
Control Procedure C = handling cost
1. Order Cycling Method - the periodic cycle of reviewing the materials on
hand and placing an order to maintain the desired level of inventory At EOQ, the OC and CC are equal. Habang kumokonti ang average
2. ABC Analysis - inventory are categorized. For example; fast moving, inventory, bumababa din yung carrying cost pero mataas yung ordering
slow items, small items, big items to know when to reorder the inventories. cost.
3. Two-bin System - gagamit ng dalawang storage bins, one for operation Total Cost = Carrying Cost + Ordering Cost
and one for back-up para kung naubos na yung operation, you should place
an order because the back-up will now be used for operation. System of Accounting for Inventories
4. Minimum-Maximum System - set ng minimum inventory na magiging 1. Periodic Inventory System - does not keep real time info of inventories.
clue na kailangan na umorder ulit. Mag-set din ng maximum inventory na 2. Perpetual Inventory System - updates stock cards regularly.
magiging limit ng pwedeng inventory on hand.
5. Automatic Order System - may predetermined reorder point na
magsisignal na kailangan na mag-order ulit.

Basic Aspect of Material Control

 Physical and Operational Aspect
 Limit and access to materials - may ibang mga items na expensive,
hence prone sa theft. Kung perishable naman, kailangan doble alaga
dahil baka magdeteriorate.
 Proper segregation of duties and responsibilities
 Accuracy of recording
 Control of Investment in Materials - kung masyadong marami ang
inventories on hand, malaki din ang investment na hawak because it Inventory Costing Method
is expensive. Plus may cost of carrying materials para maalagaan ito. 1. FIFO - 1st purchased, 1st issued to production
2. Weighted Average - ave unit price is computed every time there is a
To control the investment in materials: purchase made to determine the new unit price of materials
Order Point - when to order and how many should be ordered 3. LIFO - last purchased, 1st issued
Formulas: 4. Specific Identification - specific costs are attributed to the items
 Order Point = (Usage x Lead Time) + Safety Stock
 Safety Stock = (Maximum Daily Usage - Average Daily Usage) x Example:
Lead Time in Days I. FIFO
 Normal Maximum Inventory = (Order Point - Normal Use During
Lead Time) + Quantity Order - in a normal day, max inventory on
hand
 Absolute Maximum Inventory = (Order Point - Minimum Use
During Lead Time) + Quantity Order - in assumption that the usage
of inventory is in minimum
Lead time - estimated time in days to place an order up to its receipt
Safety Stock - estimated quantity of materials needed to avoid stockout
(Maximum Daily Usage - Average Daily Usage) x Lead Time in Days

II. LIFO

Economic Order
Quantity - how many
units to be ordered in the
most economical cost.

III. Weighted Average

O = cost of placing an order

 The Cost of Inventory
- Includes all cost of purchase (net of trade discounts but includes taxes,
freight and handling costs), cost of conversion, and others.
Except:
1. Abnormal amounts of wasted materials, labor and overhead (expense)
2. Storage cost of finished goods. Storage cost of WIP is included.
3. Administrative Cost
4. Selling Cost

Included in Inventory Count:

1. Materials in transit purchased FOB SP
2. FG in transit sold FOB Destination
3. FG out on consignment

Not included in inventory count:

1. Materials in transit FOB Destination
2. FG in transit sold FOB SP
3. Goods accepted on consignment
IV. Specific Identification
Trade and Cash Discount
1. Trade Discount - deducted from list price to arrive at invoice price
walang JE
2. Cash Discount - deducted from invoice price when credit terms are
followed used to attract early payments; may JE

MEASUREMENT (VALUATION) OF INVENTORY - PAS 2, par 2

- Inventories should be measured at LCNRV
- If everything is normal, NRV and Cost should be equal.
- Pag magkaiba, choose the lowest amount.
- Pag ang finished goods ay maibebenta at or above cost, materials and
other supplies incorporated in the product should not be written down
below cost.
- Pag ang cost of finished goods exceeds NRV, materials are written down
to NRV.

Accounting for Inventory Write-Down

- If cost is less than NRV, inventory is carried at cost. Inventory is
NORMALLY recorded at cost. Pag cost is more than NRV, it will be
carried at NRV and magkaka write-down.
*Two Methods for Inventory Write-Down
1. Direct Method - materials are adjusted to LCNRV kaagad
- Walang nirerecognize na loss separately kasi naka-adjust na ‘yung
amount of materials.
- Decrease the amount of inventory, increase na agad sa COGS
2. Allowance Method
- Materials is recorded at cost and recognize another amount for the loss on
inventory write-down.
Loss on inventory write-down xxx
Allowance for inventory write-down xxx
- Inaadjust ang allowance yearly depending on the difference between the
cost and NRV in inventory

Example: